Choosing the right business is the first step to entrepreneurial success.
According to studies made by the U.S. Small Business Administration, only
66.0 percent of small businesses survive its first two years, and survival
rate lowers to 39.5 percent in at least 6 years. In 2000, it is estimated
that 550,000 small businesses closed, and business failure for one-person
businesses is about 38.2 percent.
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Your goal, therefore, as an entrepreneur is to find a business that
stands a greater chance at success. You will need to determine what you can
and cannot do, research on the potential market and how other similar
businesses are doing, and what works well in your area or selected business
medium.
Dr. Irving Burstiner, in his book, "How
to Start and Run Your Own Retail Business" offers various
approaches in choosing the best type of business. While he focuses mainly on
the retail business, the methods he suggests are applicable across various
types and business medium, even the Internet.
1.
Less Money Out.
The first school of thought focuses on the amount of resources that you
have. The kind of business that you start depends on the amount of capital
you can raise. If you have deep pockets, you can go all out with your
business - getting first-rate equipment and furnishings, hiring employees,
launching the business in grand style, and buying loads of inventory.
However, if you have little capital, all you can do is to stretch what you
have and start the business on a much smaller scale.
You may have a wonderful concept for a children's bookstore with play and
storytelling sections for kids, and a coffee shop for the adults. That kind
of vision requires vast amounts of capital - from inventory, lease,
furnishings and store décor. If you cannot finance your vision, you may
need to downscale your business and instead find ways to start on this route
but without the expense. One way is to start an e-commerce site where you
will not have to pay for furnishings, expensive rent and other overhead that
a retail store will need.
2.
Novelty and Excitement.
Another strategy for selecting a business is to start one that is currently
hot, hip and new. In the Philippines, for example, pearl shakes - an
innovative cool beverage drink in natural flavors mixed with
"pearls," or dark, spherical, chewy balls made from yam and
tapioca -- became the hottest craze in town. Mom and pop stalls and cafes
offering this new drink popped up all over the metropolitan Manila.
You can join in the fray, and start a business that has already proven
itself to be a moneymaker for others. However, there is danger in adopting a
start-up strategy on prior demand--demand already created by others. What if
the business runs out of steam, and the novelty and excitement that pushed
it initially wears thin? You may be faced with cutthroat competition, with
price-cutting as the ultimate marketing weapon of choice.
3.
Safety in Numbers.
As a new entrepreneur, you may also consider a business that has already
proven popular, dependable with consistent demand, and can be found
everywhere. Common businesses include eating places, groceries, used
merchandise stores, gift and novelty stores. If these businesses have
staying power and are frequently found, then they must be profitable, right?
Well, not always. There is such thing called "market over
saturation." A small town may be able to accommodate only one gift
shop. Add another one and you may be stretching the market too thin, and end
up in the dustbin.
4.
The Fewer, the Better.
On the other side of the spectrum from those who believe in safety in
numbers are those who think that they are better off in a business with
fewer competitors. This is the idea behind the strategy of focusing on a
market niche, which has proven to be apt, even a lifesaver, for many small
and home-based businesses. Niche entails offering unique products or
services to a few concentrated markets.
5.
Rapid Growth.
You may also want to start a business that has enjoyed fast growth in the
past years. A rapidly growing business sector, where many new businesses
continue to operate, shows that there is great demand for the product; the
market can absorb new entrants; and if by looking at the size of businesses
operating, the market may be profitable even for one-person businesses.
Using data from the Bureau of Census, you will find that the sectors that
enjoyed the most rapid growth from 1972 to 1987 include the following: Gift,
novelty and souvenir stores (up 216%); Hobby, toy and game shops (up 180%);
book stores (up 137%); Sporting good stores and bicycle shops (up 127%); and
florists (up by 108%).
The sectors that saw a decrease include: Drinking places (down 17%);
Household appliance stores (down 15%); and variety stores (down 5%). The
reasons for the shrinking number of businesses in these sectors include
overcrowding and declining customer interest and demand.
6.
Failure Rate Method.
You may check the businesses with the greatest number of failure record. Dun
and Bradstreet (http://www.dnb.com) publishes a yearly Business Failure
Record report. This report is not merely an estimate; but represent complete
tallies of business failures. D&B defines business failures as those
that "ceased operations following assignment or bankruptcy; ceased
operations with losses to creditors after such actions as foreclosure or
attachment; voluntarily withdrew leaving unpaid debts; were involved in
court actions such as receivership, reorganization or arrangement; or
voluntarily compromised with creditors."
In 1997, the businesses with the lowest failure rates (per 1,000 listed
concerns) include drug and proprietary stores (33); fuel dealers (37);
sewing, needlework and piece goods (41), used merchandise stores (47); and
liquor store (52). On the other hand, non-store retailers (216); trucking
and warehousing (208); fishing, hunting and trapping (273) are the
businesses with the highest failure records.
7.
Biggest Payoff.
Another logical choice for choosing a business is to look for those that
yields the best return-on-investment. This approach involves "checking
through the operating results for different business types to find those
with high percentages of operating profit."
The best source of data that would allow you to determine an industry's
operating profit is the Risk Management Association's http://www.rmahq.org
Annual Statement Studies. This report offers financial statement ratios of
small and medium-sized businesses on about 600 industries. The book costs
$145 for non-members, but check with your local library if they carry the
publication.
Whatever business you decide to start, the key is to put up an enterprise
that fills an unmet need of the market and to look for new niches to
dominate.
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